Book Excerpt: The Lords of Strategy

A fair-minded observer might reasonably conclude that while strategy and its champions may not have been a main causal factor in bringing on the global financial crisis, they did not do much to avert it, either. Looking more widely across the burned-over economic landscape of 2008 and 2009, a disappointed student of the revolution could even be tempted to entertain notions along the lines of, "What good was strategy, anyway? A plague on the original lords, their successors in consulting and management, and all that they have wrought."

Not so fast, please. In registering the pain from the biggest financial crisis since the Great Depression and one whopper of a recession, let us not point fingers too quickly or forget contributions made over the longer pull of history. For example, while consultants may have abetted the process, they weren't the ones who elevated shareholder value (a.k.a. the stock price) to its place as god above all others. That was Wall Street, egged on by swinish types like you and me, who came to expect our investment portfolios and 401(k) plans to increase in value by 10 percent a year. The larger story of what happened in the economy is complicated, with few unadulterated villains. Even the private-equity sharpies, whom critics deride as utter greedheads, can point out that most of their investors are players like your child's college or the pension fund that pays out your parents' retirement benefits. Don't you want them to be earning a superior return?

Yes, strategy and strategy consultants did help companies possessed of the requisite intelligence to become more efficient and competitive. Leaner and, yes, occasionally meaner. But as the world grew steadily more capitalist, with Chinese, Indians, and other entrepreneurial populations piling into the capitalist fray, isn't that what you'd hope your favorite companies would be doing?

Consider the alternative, as represented by the Big Three American auto companies. General Motors, Ford, and Chrysler have each availed themselves of the services of the strategy firms, but I've never known a consultant who did work for them who didn't come away cursing and muttering. Like the BCG partner who demonstrated to Ford that it could make more money financing cars than it could building them: "I told them the advantage wouldn't last, that even GM, dumb as it was, would eventually wise up to the game. Which it did, though it took a couple of years."

So arrogant, silo-ridden, and inert were the Detroit giants that they never bothered to get their minds around the three Cs of the strategy revolution, despite much advice to do just that. (When it came to the auto companies' core operations, "We never laid a glove on them" ruefully admits the former head of one of the great strategy consultancies, speaking of both his own firm and that of his competitors.) Customers? Who are you talking about? Laws in every state prohibit automakers from selling a car directly to you or me; the sale has to go through a dealer, which the car companies came to regard as their real customer, with predictable, dismal effects. Costs? Easier to buy a few more years of peace with the United Auto Workers—kick the can down the road a little farther—even if it means that it costs us a few thousand more to make each vehicle than it does those devils from abroad. Competitors? Per the quotation from Henry Ford II in the preface, what do foreigners with their little "shitboxes"—his term—know about making real cars?

Without strategy and strategy consultants, we could have broad swaths of the U.S. industry that look like the automakers—that is, uncompetitive on a global basis (as are, for instance, many sectors of the Japanese economy once you get beyond automobiles and consumer electronics). The fiercening of capitalism isn't going away; if anything, it looks likely to grow more intense. In response, strategists will have to heighten and broaden their sensitivity to potential dangers, shedding any remnants of the profit-fueled complacency that, for example, allowed them to remain oblivious to systemic risk. To update Dr. Grove's maxim, in this new world, only the really, really paranoid may survive. Add to this William Burroughs's observation that sometimes, paranoia is just having all the facts. Strategy and its handmaiden Greater Taylorism will have to do a better job on that front as well. All this will probably entail a rewiring of certain circuits in the corporate brain, but as strategy contemplates its future, there are signs that the effort may already be under way.

Excerpted from The Lords of Strategy: The Secret Intellectual History of the New Corporate World (Harvard Business Press, March 2010), with permission from the publisher. All Rights Reserved; Copyright 2010 Walter Kiechel III.